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Advacc Forex
Advacc Forex
LO1
1. On May 1, 20X3, Emu Corporation purchased merchandise from a
Danish firm for 198,000 Danish krone when the spot rate for
krone was 5.200 krone per dollar. The account payable was
denominated in krone. Emu settled the account on September 1
when the spot rate for krone was 5.345 krone per dollar. How
much cash will Emu have to disburse to settle the account?
a. $ 37,043.97.
b. $ 38,076.93.
c. $1,029,600.00.
d. $1,058,310.00.
LO1
2. Cassowary Corporation’s balance sheet at December 31, 20X3
included a $20,400 account receivable from Quail Corporation of
Australia. The account receivable was denominated as 30,000
Australian dollars (A$). What entry did Cassowary make on
January 16, 20X3 when the account receivable was collected and
the exchange rate for A$ was $.67?
a. Cash 20,100
Accounts Receivable 20,100
b. Cash 20,100
Exchange Loss 300
Accounts Receivable 20,400
c. Cash 20,400
Accounts Receivable 20,400
d. Cash 20,700
Accounts Receivable 20,400
Exchange Gain 300
LO2
4. Which of the following factors will affect the spread between
spot and forward rates?
a. dollar weakened relative to the Korean won and the won was
the denominated currency.
b. dollar weakened relative to the Korean won and the dollar
was the denominated currency.
c. dollar strengthened relative to the Korean won and the won
was the denominated currency.
d. dollar strengthened relative to the Korean won and the
dollar was the denominated currency.
LO3
6. If the sale of the merchandise was denominated in francs, the
November 30 entry to record the receipt of payment from William
Tell included a
LO3
7. If the sale of merchandise is denominated in dollars, the
November 30 entry to record receipt of the payment from William
Tell included a
LO3
8. On December 5, 20X3, Goose Corporation, a US firm, bought
inventory items from Grebes Corporation of Norway for 1,000,000
Norwegian krone when the spot rate for krone was $0.168. At
Goose’s December 31, year-end, the spot rate was $0.167. On
January 4, 20X4, Goose purchased 1,000,000 krone for $167,500
and paid the invoice. How much gain or (loss) did Goose report
in its 20X3 and 20X4, respectively, income statements?
LO3
9. What exchange gain or loss appeared on Duck’s 20X4 income
statement?
a. a loss of $6,000.
b. a loss of $3,000.
c. a gain of $3,000.
d. a gain of $6,000.
LO3
10. What is the final amount of the loan payable that Duck showed
on its books, in dollars, just before it repaid the loan?
a. $234,000.
b. $236,000.
c. $240,000.
d. $243,000.
LO4
12. What amount of exchange gain or (loss) was included in Swan’s
20X5 income?
a. $(8,800).
b. $(4,400).
c. $ 4,400.
d. $ 8,800.
LO4
13. Under which of the following situations must a discount on a
forward contract be amortized to income over the life of the
contract?
LO4
14. A forward exchange contract is transacted at a discount if the
current forward rate is
LO5
16. Derivatives are measured on the financial statements at?
a. Historical cost.
b. Effective hedge price.
c. Strike price.
d. Fair value.
LO6
17. Which of the following hedging strategies would a business most
likely use?
Required:
LO3
Exercise 2
Required:
Compute the foreign currency gains or losses on the December 31, 20X5
financial statements and show your calculations.
LO3
Exercise 3
Required:
The 30-day forward rate for yen on December 31, 20X3 was $0.0104.
Required:
LO4
Exercise 5
The 30-day futures rate for euros on December 31, 20X5 was $1.005.
Required:
On August 1, Stork exercises the option when the gas market price is
$5.00 per gallon and purchases 40,000 gallons of gas. On August 15,
Stork uses all of the gas on a charter flight.
Required:
What are Stork’s journal entries with regard to the aviation gas
option?
LO7
Exercise 7
Required:
Assume that all three companies are subject to the same accounting
standards and have December 31st year-ends. The spot rates for pesos
on November 1, December 31, and January 30, are $0.100, $0.098, and
$0.107, respectively. The 30-day forward rate for pesos on December
31, 20X3 is $0.101.
Required:
LO8
Exercise 9
Assume that Gannet, Seoul and Tokyo are subject to the same
accounting standards and have December 31 year-ends.
Required:
Required:
3. c
4. b
5. c
13. d
14. c
15. c
©2009 Pearson Education, Inc. publishing as Prentice Hall
12-13
16. d
17. b
18. a
19. b
20. d
Requirement 1
Requirement 2 and 3
Exercise 2
12/10/X5 No entry
12/31/X1 No entry
Cash 10,600
Contracts Payable 10,000
Cash 10,000
Contract Payable 10,600
Exercise 5
Cash 1,015,000
Contract Payable 1,020,000
Cash 1,020,000
Contract Receivable 1,015,000
(1.35-1.50)x200,000/(1.01)1
Implicit 1.32x200,000(1+r)3=1.35x200,000
rate r=0.007519
Discount Amortization Balance
264000
11/30 1985.04 265985
12/31 1999.97 267985
1/31 2015.00 270000
Equipment 310,000
Cash 310,000
Equipment 2015
OCI 2015
Cash-pesos 107,000
Contract payable:AB Trader 102,000
Contract Receivable-pesos 107,000
Cash 102,000
Account Payable:
600,000,000/W730 = $821,918
$821,918 - $800,000 = $21,918
Deposit Receivable:
675,000,000/W730 = $924,658
$924,658 - $900,000 = $24,658
Account Payable:
600,000,000/W700 = $857,143
$857,143 - $821,918 = $35,225
Deposit Receivable:
675,000,000/W700 = $964,286
$964,286 - $924,658 = $39,628
Exercise 10
1,369,863-1,333,333=36,530
1,333,333-1,265,823=67,510
Cash 1,369,863
Accounts receivable 1,265,823
Forward contract 104,040